et’s start with the biggest piece of good news, which is the US recovery. The US economy grew by almost 4% if we compare Q3 of 2013 to Q2. This confirms what we said when we announced IMD’s 2013 World Competitiveness rankings last May – that the US is again starting to drive the world economy a bit. The US financial sector is in better shape, real estate is looking healthier, household consumption is picking up, and there’s also this extraordinary “energy renaissance” in the US. In 2015 the US might produce more gas than Russia, and by 2020 it could produce more oil than Saudi Arabia – about 11 million barrels a day.

Other big economies are doing well too. China is still growing very strongly at 7-8% a year. Germany is posting good results and looking very stable. Britain is growing almost 3% quarter over quarter, and Spain finally seems to be coming out of recession.

But there are some dark spots. France, the second largest economy in Europe, is in danger of becoming the “sick man of Europe” because of its disappointing economic performance and the difficulty of reforming the country. And Japan, although improving a bit, still has its issues.

Four long-term risksAlthough headline economic data is generally looking better, the road to recovery is not a 100-meter dash. It’s a longer journey, and I see four bigobstacles:

Debt and budget deficits. These are huge issues affecting the sustainability of future growth. Take budget deficits. Britain is performing much better, but its budget deficit is still 6.7% of GDP. In Japan the deficit is 8.2% of GDP, and in Spain it’s 7%.

Or look at the US, which has $17 trillion of federal debt and five years from now will very possibly have a federal debt still equivalent to 100% of GDP. The debt issue is present on other levels too. The state of California is almost bankrupt, the city of Detroit did go bankrupt, and household debt is still a major problem. Households outside the US have debt problems too; the Netherlands, Ireland, Spain and Portugal all have household debt above 200% of GDP. It will take a long time to correct this.

Taxation. These debts and deficits mean that governments need money, and they will try to find it by increasing taxation in three areas. One is taxing offshore money – now we’re seeing China starting to look at Chinese money held overseas. The second is introducing a new form of taxation, such as Europe’s so-called financial transaction tax on shares and derivatives. But the real big one is reforming the taxation of global companies. What firms such as Apple, Starbucks and Google currently do is perfectly legal, but the US, the EU and the OECD are all looking to tighten the rules here—simply because governments need money.

Regulations. These are increasing, and increasingly complex. The Basel III Agreement, for example, has more than 640 pages of regulation, and the Dodd-Frank Act in the US has more than 800. The big mistake is that our complex economic system is being managed by even more complex regulation, and companies will find it very hard to deal with this combination.

All these regulations will either impede business growth or will simply be inapplicable. You can make new rules in the financial sector, but how do you apply them? It’s been estimated that we might need 70,000 full-time people in Europe alone just to monitor the system. This is crazy.

Lack of bank credit for SMEs. Right now money is moving in a kind of “closed circuit” from central banks to commercial banks, and then either to governments or stock exchanges. So while large companies can still get funding, small and medium-sized enterprises (SMEs) can’t get enough credit at reasonable rates. This is a big problem, because SMEs are the lifeblood of many economies. Money is going to money when it should be going to business. If we want to have a real recovery, more cheap money should go to smaller enterprises. Otherwise we will never get anywhere.

Two “new normals”In terms of economic performance, I think we will start to see two “new normals” emerge in 2014—one for advanced economies and the other for emerging markets.

Advanced economies may have a lengthy spell of stagnation or weak growth interrupted by bursts of activity that may not be sustainable. This is in contrast to the pre-2008 pattern of increasing growth occasionally interrupted by a recession. It means cost efficiency and resilience will be the name of the game for companies in advanced economies.

Emerging economies, on the other hand, will produce more and more companies competing on the world stage with global brands. About 1,000 companies from emerging economies can now be classed as “global” with a turnover of about $1 billion. Many of these enjoy support from their home governments and are acquiring assets around the world. This started in Africa, moved to Latin America, and is now happening in Europe and the US. We will also see more south-south trade and business activity. China did 56% of its trade last year with the global south, not with the US or Europe. It is a sign of things to come.

Stay positive, but flexible tooI think we should be positive about 2014. The global economy is in better shape than one year ago, and certainly in much better shape than three years ago. In particular, the rate of innovation is hugely encouraging, not only in the US but also in big emerging economies such as China.

But the world remains economically fragmented, with some countries racing ahead and others stuck in recession. So companies will need to balance their optimism with flexibility, and with awareness of the long-term risks to sustainable growth.

Stéphane Garelli is Professor of World Competitiveness at IMD and the founder of IMD’s World Competitiveness Center.